DOCSLIB.ORG

Price and Cost Competitiveness

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Price and Cost Competitiveness doc. D0 II/24/2/95 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR ECONOMIC AND FINANCIAL AFFAIRS PRICE AND COST COMPETITIVENESS 2nd quarter 1995 I PART 1: QUARTERLY REPORT PART 2: TABLES AND CHARTS - CCE - DG 11-D-4 - COMPETITIVENESS AMONGST INDUSTRIALISED COUNTRIES QUARTERLY REPORT- SECOND QUARTER 1995 This report provides a periodic assessment of the macroeconomic competitiveness of the European Union (EU) and 20 industrialised economies on the basis of a number of cost and price indicators. It appears quarterly. It consists of two parts. Part 1 offers an analysis of recent developments. The discussion is illustrated by a small number of tables and graphs. Part 2 provides more detailed information. For each country, changes in nominal and real effective exchange rates are presented in the form· of tables and graphs. The nominal effective exchange rate (NEER) aims to track changes in the value of a nation's currency relative to the currencies of its principal trading partners. It 1s calculated as a weighted average of the bilateral exchange rates with those currencies. The real effective exchange rate (REER) aims to assess a nation's competitiveness relative to its principal competitors in international markets. It corresponds to the NEER deflated by selected relative (or 'effective') cost or price deflators. Part 2 of the report presents real rates based on the GDP deflator, the deflator of export prices, the deflator of producer prices in manufacturing, unit labour costs (ULC) in manufacturing as well as unit labour costs in the economy as a whole. 1 The discussion in Part 1 focuses on ·rates~ based on unit labour costs in the manufacturing sector. The current report presents in Part 2 competitiveness indicatQrs for both EU15 and EUlO. EUlO refers to the group of countries participating in the Exchange Rate Mechanism (ER..l\1). Indicators for EU12 are no longer provided. The focus in Part 1 is on EU15. 1987, the year of the Louvre Accord and the last realignment of the 1980s, is taken as the base period for the various indices calculated. This does not imply that 1987 exchange rates should be treated as equilibrium rates. Part 1 of the report starts with summary of main developments since 1987. It consists l of two sections. The first section presents exchange n,1e developments of the US dollar, the Japanese yen and a basket of EU currencies relative to twenty industrialised nations. In this first section the bilateral position of the European Union relative to the United States and Japan is also examined. The second section comments on exchange rate developments among the countries of the Union. A technical annex provides further details. 18 July, 1995 doc. Il24 2.95-EN PART1 ·COMPETITIVENESS AMONGST INDUSTRIALIZED COUNTRIES QUARTERLY REPORT · 2ND QUARTER 1995 CCE-DG II 0-4 Ref. AD/at EVOLUTION OF THE MACROECONOMIC COMPETITIVENESS OF THE EUROPEAN UNION MAIN CONCLUSIONS In the second quarter of 1995: • In nominal effective terms, the European Union currencies depreciated by 1 Y2%, the first decline since the first quarter of 1994. This depreciation stemmed from the weakness of the Italian lira, the pound sterling and the Swedish crol\n. The US dollar depreciated by 6%, a continuation of the trend observed since the beginning of 1994. The Japanese yen, on the other hand, appreciated by no less than 12% in nominal terms. • The above currency fluctuations largely determined the developments in cost competitiveness: a gain of 1o/o for the European Union, a gain of 5o/o for the United States and a loss of 10%> for Japan. • The large currency fluctuations within the Union, which were obserVed in the first quarter of 1995, continued into the second quarter. Changes in the nominal effective exchange rate varied from+ 3o/o for Denmark to -6% for Italy. The Spanish peseta, that had depreciated by 3% in the first quarter, regained much lost ground in the second quarter (+2%). These currency fluctuations had the expected effect on cost competitiveness. Since the first quarter of 1994: • The US dollar has depreciated continuously relative to the currencies from other industrial countries. This has led to an 11%, improvement of the cost competitiveness of the US manufacturing industry. During the same period, losses of 4%, 7% and 15% were recorded by the European Union as a \vhole, Germany and Japan respectively. • Only three Union 1\1ember States improved their competitive position relative ~o the Union as a \\hole due to the nominal depreciation of their currency: Italy (15%), the UK (7°/o) and Ireland (4°io). The Irish improvement was the result of its excellent cost performance. Losses for the other countries ranged from Y2°/o for Spain to 14%> for Finland. In Greece, Spain and Portugal losses occurred despite a nominal currency depreciation. All other currencies have appreciated. Since the first ERM crisis (since the third quarter of 1992): ... European Union currencies have depreciated by 18%>, resulting in a 15% improvement in European cost competitiveness. However, Germany's competitive position in the industrial countries has worsened by 11 ~lo. The competitive losses of Japan have been massive (45~~). while the US has made a gain of 2°/o thanks to the dollar depreciation, that started in the first quarter of 1994. Over a longer perspective (since the first quarter of 1987): • The European Union's competitive position remains unchanged, despite a 10% nominal depreciation of its currencies. • Three groups of EU Member sta~es may be distinguished: first, countries whose competitiVe position has not changed significantly (Spain, France, the Netherlands, Austria and the UK); second, countries with significant losses due to the nominal appreciation of their currency (the BLEU, Denmark and Germany) or rising unit labour costs (Greece and Portugal); and third, countries with significant gains due to currency depreciation (Italy and Sweden) or a fall in their relative unit labour costs (Ireland and Finland). 2 COMPETITIVENESS AMONGST INDUSTRIALISED COUNTRIES QUARTERLY REPORT- SECOND QUARTER 1995 I. INTERNATIONAL DEVELOPMENTS The development of the macroeconomic competitiveness of the industrialised countries since the Louvre Accord can best be described by distinguishing three periods (see Graph 1). The first period runs from the first quarter of 1987 to the third quarter of 1992. The end of the period is marked by the first EMS crisis of September 1992. During this period both currency appreciation and a rise in relative unit labour costs contributed to an 18o/o loss in European cost competitiveness. The real effective appreciation of the German Mark was 9%, only half of that of the European currencies on average. The nominal depreciation of the dollar aided in improving the competitive position of US manufacturing (by 18%). The cost competitiveness of the Japanese manufacturing sector (by 4%) also rose due to an improvement in cost performance. The second period runs from the third quarter of 1992 to the beginning of 1994. The EMS crises caused a nominal (21 °/o) and real (19%) depreciation of the European currencies. This average, however, masks large differences between the various European currencies. The nominal effective exchange rate of the German mark, for instance, remained unchanged. Germany's competitive position ev~n deteriorated as its unit labour costs rose by 4% relative to other industrial nations. The yen soared leading to · a 26o/o loss in Japanese competitiveness. American cost competitiveness declined by 1Oo/o as the dollar appreciated relative to European currencies and the Canadian dollar. The depreciation of the dollar relative to the Japanese yen is a constant feature of all three periods. The third and final period, that starts with the first quarter of 1994, shows renewed gains in US competitiveness (11 o/o) due to a nominal depreciation of the doll~r of · 13°/o, and losses in cost competitiveness for the European Union (4o/o). However, .the competitive losses aftlicting Germany (7%) and especially Japan ( 15%) are even more important. In Japan, the appreciation of the yen has generated deflatory pressures which have prevented the Japanese· trade surplus from coming down significantly. Worries about this surplus are a major cause of the strength of the yen. The Bank of Japan has recently made some efforts to bring an end to this vicious cyck. which the Fed has supported by intervening in foreign exchange markets. It remains to be seen whether these efforts will be sufficient. Considering the three periods together, we can conclude that the recent gains in US cost competitiveness have offset the losses made during the second period. Since the beginning of 1987 however, US competitiveness has improved by about 20o/o. Japan's competitive position has deteriorated significantly since the beginning of the EMS crises. Smaller gains in the first period could not help prevent a 40°/o loss in cost competitiveness since the beginning of 1987. The competitive position of the European Union has not changed since early 1987. Competitive gains made during the EMS crises (or the second period) offset both earlier and more recent losses. However, Germany experienced losses in cost competitiveness in all three periods, adding up to a total loss of 20°/o since the beginning of 1987. 3 GRAPH 1: DEVELOPMENT OF COST COMPETITIVENESS (1) RELATIVE TO INDUSTRIAL PARTNERS SINCE THE LOUVRE ACCORD 30 20 10 0 -10 -20 -30 United States Japan European Union Germany 1•9203/8701 (2) Bl9401/9203 (2) 09502/9401 (2) I ( 1) Cost competitiveness as measured by the inverse of the nominal effective exchange rate deflated by unit labour cost in MANUFACTURING. (2) Expressed as the natural logarrthm of the ratio (in %) l. United States During the second quarter of 1995, the bilateral exchange rate of the US dollar against the German mark and the Japanese yen stabilised after the sharp decline obsenred in the first quarter.
Load more

Recommended publications
  • Angela Merkel Energy Security Spotlight on Africa
    40 Years of Summits Inside: a special supplement focusing on four decades of debate and decision-making GERMANY: THE SCHLOSS ELMAU SUMMIT AN AUTHORISED PUBLICATION OF THE 2015 G7 SUMMIT Angela Merkel Germany’s Chancellor outlines the summit agenda Energy security Spotlight on Africa Creating a sustainable future A focus on the continent’s prospects and countering climate change for growth and development Sanofi_placed.indd 2 23/04/2015 11:42 Sanofi_placed.indd 3 23/04/2015 11:42 THE ANSWER IS BLOWING IN THE WIND Security of supply. Air pollution. Energy poverty. Unemployment. Climate change. Volatile fossil fuel prices. The world is full of problems. When shaping the society of tomorrow, we need to deal with all these problems at the same time. The good news is that to all these problems, there’s one solution. Wind energy is clean. It’s scalable. And most importantly, it’s competitive. Today, the cost of wind energy is lower than nuclear. Lower than gas. In some cases even lower than coal. And that’s before we add the costs of pollution. In short, the answer to many of our most pressing questions is literally blowing in the wind. €/MWh 125 100 75 50 25 0 Gas Coal Solar Nuclear Wind onshore Wind Source: ECOfys/European Commission solutionwind.com #solutionwind Clean. Competitive. Ready. European Wind Energy Association_placed.indd 1 13/05/2015 12:19 Contents G7 Germany: The Schloss Elmau Summit | June 2015 Introductions and leaders’ perspectives The G7 in numbers 10 40 years of G7 meetings — commitment for 38 A look at how the G7 members
    [Show full text]
  • Building Better Global Economic Brics
    Economics Global Economics Research from the GS Financial WorkbenchSM at https://www.gs.com Paper No: 66 Building Better Global Economic BRICs n In 2001 and 2002, real GDP growth in large emerging market economies will exceed that of the G7. n At end-2000, GDP in US$ on a PPP basis in Brazil, Russia, India and China (BRIC) was about 23.3% of world GDP. On a current GDP basis, BRIC share of world GDP is 8%. n Using current GDP, China’s GDP is bigger than that of Italy. n Over the next 10 years, the weight of the BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policy in the BRICs. n In line with these prospects, world policymaking forums should be re-organised and in particular, the G7 should be adjusted to incorporate BRIC representatives. Many thanks to David Blake, Paulo Leme, Binit Jim O’Neill Patel, Stephen Potter, David Walton and others in the Economics Department for their helpful 30th November 2001 suggestions. Important disclosures appear at the end of this document. Goldman Sachs Economic Research Group In London Jim O’Neill, M.D. & Head of Global Economic Research +44(0)20 7774 1160 Gavyn Davies, M.D. & Chief International Economist David Walton, M.D. & Chief European Economist Andrew Bevan, M.D. & Director of International Bond Economic Research Erik Nielsen, Director of New European Markets Economic Research Stephen Potter, E.D. & Senior Global Economist Al Breach, E.D & International Economist Linda Britten, E.D.
    [Show full text]
  • 3. IMF Article IV Consultations; 4. OECD Economic Surveys; 5
    APENDICES 1. Additional plots and tables; 2. Business Cycle Chronologies; 3. IMF Article IV Consultations; 4. OECD Economic Surveys; 5. G20, G7 Summit Issues; 6. Compendium of Key Dates and Events; 7. Forecasts: Definitions and Sources 1 APPENDIX – ADDITIONAL PLOTS 2 Observed real GDP Growth Rates: Japan, U.S., and Germany Since 1960 (Quarterly) Real GDP Growth 20% 15% 10% 5% 0% -5% -10% -15% 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Germany Japan United States Annualized real GDP growth rates from FRED and supplemented with IMF IFS data. 3 Observed Inflation Rates: Japan, U.S., and Germany Since 1960 (Quarterly) Inflation rates 24% 20% 16% 12% 8% 4% 0% -4% 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Germany Japan United States Annualized CPI inflation rates. Sources same as previous figure. 4 Central Bank Policy Rates 20% 16% 12% 8% 4% 0% -4% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Call rate - Japan Fedfunds - USA MRO - Eurozone In percent. Data from BIS. 5 Financial and Trade Globalization Financial Globalization 90 80 70 60 50 40 30 20 10 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 JPN USA DEU Trade Globalization 70 60 50 40 30 20 10 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 JPN USA DEU Data from KOF, see main text for link.
    [Show full text]
  • The Federal Reserve Engages the World (1970–2000): an Insider’S Narrative of the Transition to Managed Floating and Financial Turbulence
    Working Paper Series WP 14-5 AUGUST 2014 The Federal Reserve Engages the World (1970–2000): An Insider’s Narrative of the Transition to Managed Floating and Financial Turbulence Edwin M. Truman Abstract This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve’s role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank. JEL Codes: F3, F31, F32, F33, F34, E4, E42, F5, F52, F53 Keywords: Federal Reserve, Federal Open Market Committee, inflation, macroeconomic policies, monetary policy, external balance, exchange rates, exchange market intervention, financial crises, third world debt crises, Mexican crisis, Asian financial crises Edwin M. Truman, senior fellow since 2001, served as assistant secretary of the US Treasury for International Affairs from December 1998 to January 2001, and returned as counselor to the secretary from March–May 2009. He directed the Division of International Finance of the Board of Governors of the Federal Reserve System from 1977 to 1998. He is the author, coauthor, or editor of Sovereign Wealth Funds: Threat or Salvation? (2010), Reforming the IMF for the 21st Century (2006), A Strategy for IMF Reform (2006), Chasing Dirty Money: The Fight Against Money Laundering (2004), and Inflation Targeting in the World Economy (2003).
    [Show full text]
  • The Group of Seven
    The Group of Seven We are now in the era of the G8, although the G7 still exists as a grouping for finance ministers and central bank governors. Why do G7 finance ministries and central banks co-operate? What are the implications of this for the power of the United States and the abilities of the other six states to exercise leadership? What influence do the G7 have on global financial governance? How much authority do they possess and how is that authority exercised? This is the first major work to address these fundamental questions. It argues that to understand the G7’s contribution to global financial governance it is necessary to locate the group’s activities in a context of ‘decentralized globalization’. It also provides original case study material on the G7’s contribution to macro- economic governance and to debates on the global financial architecture over the last decade. The book assesses the G7’s role in producing a system of global financial governance based on market supremacy and technocratic trans-governmental consensus and articulates normative criticisms of the G7’s exclusivity. For researchers in the fields of IR/IPE, postgraduate students in the field of international organization and global governance, policy-makers and financial journalists, this is the most comprehensive analysis of the G7 and financial governance to date. Andrew Baker is Lecturer at the School of Politics and International Studies at the Queen’s University of Belfast. He is the co-editor of Governing Financial Globalisation (Routledge, 2005) and has published in journals such as Review of International Political Economy and Global Governance.
    [Show full text]
  • The Future of Central Bank Cooperation
    1 The Future of Central Bank Cooperation Beth A. Simmons Harvard University Prepared for the BIS 75th Anniversary Conference June 27-29, Basel Revised Version: 6 November 2005 I would like to acknowledge the excellent research assistance of Alexander Noonan and Adrian Yung Hwei Ow. All errors remain my own. 2 The Future of Central Bank Cooperation Beth A. Simmons Harvard University Central bank cooperation has a long history. From the episodic efforts to support the 19th century gold standard to the personal interactions of interwar central bankers, to the institutionalized post-war efforts to maintain fixed exchange rates, to the post-Bretton Woods progress in developing standards for prudential bank regulation, central bankers have progressively consulted and coordinated their activities. Such cooperation has always been shaped by a few perennial parameters. Can they agree on theory (end-means relationships)? To what extent can central bankers agree on goals (social purpose)? Do they have the capacity (technical and institutional) to achieve their collective goals? Does the broader political environment facilitate or impede cooperation? It is easy to assume, in writing a paper on the “future of central bank cooperation”, that such cooperation is (1) easily observable (implicit in the assumption that a non-participant can meaningfully write about it), and (2) a good thing. Neither of these assumptions is without controversy, however. First, central bank cooperation is factually controversial. Looking over the historical record, there are important disagreements over whether, in fact, central bankers have cooperated at various historical moments. The passage of time does not seem to have settled the debate over whether, for example, central bankers in the 19th century were mutually cooperative or merely opportunistic.1 Much depends on how one defines cooperation.
    [Show full text]
  • The Renminbi Exchange Rate Revaluation: Theory, Practice and Lessons from Japan
    The Renminbi Exchange Rate Revaluation: Theory, Practice and Lessons from Japan Toshiki Kanamori （金森俊树） Zhijun Zhao （赵志君） March, 2006 Asian Development Bank Institute Kasumigaseki Building, 8th Floor 3-2-5 Kasumigaseki Chiyoda-ku, Tokyo 100-6008 Japan www.adbi.org ADBI Policy Paper No. 9 [email protected] © 2006 Asian Development Bank Institute. Knowledge Management Unit 3/06 ISBN: 4-89974-010-7 The views expressed herein do not necessarily reflect the views or position of the ADB Institute, its Advisory Council, Board of Directors, or the governments they represent. The ADB Institute does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use. The word “country” or other geographical names do not imply any judgment by the ADB Institute as to the legal or other status of any entity, including its borders. About the authors Toshiki Kanamori is Director, Administration, Management and Coordination of the Asian Development Bank Institute (ADBI). He graduated from Hitotsubashi University as well as from New Asia and Yale Center of Chinese University of Hong Kong. During his government career he served with Japan’s Ministry of Finance, Ministry of Foreign Affairs, and Ministry of International Trade and Industry. He was an Alternate Director at ADB HQ from 1990 to 1993. Before joining the ADBI, he was a Visiting Fellow at the China Business Centre (CBC), Hong Kong Polytechnic University. He has published many articles on the PRC economy as well as on global socio-economic issues. Zhijun Zhao is professor and senior researcher of the Institute of Economics, Chinese Academy of Social Sciences (CASS).
    [Show full text]
  • German Monetary Policy in the Second Half of the Twentieth Century
    German Monetary History in the Second Half of the Twentieth Century: From the Deutsche Mark to the Euro Robert L. Hetzel tarting in January 2002, citizens of the European Monetary Union (EMU) replaced their national currencies with the Euro, issued by the S European Central Bank (ECB). Europeans created a new pan-European central bank as a symbol of a future united Europe. However, what historical process explains the broad monetary policy of the ECB, that is, its objective of price stability and its strategy for achieving that objective? The short answer is that its founders designed the ECB to look like the Bundesbank. How then did the Bundesbank evolve? To answer that question, I survey German monetary policy in the second half of the twentieth century. I divide this history into three main sections.1 The first treats the Bretton Woods system of fixed exchange rates. The second treats the floating exchange rate period that began in 1973. It chronicles the Bundesbank’s ultimate deci- sion to accord primacy to reducing inflation rather than unemployment. The last explains how the Bundesbank dealt with the pressures created by move- ment toward a single European currency. The evolution of the Bundesbank into an institution now identified as a modern central bank is fundamental to the article. A modern central bank This article follows Hetzel (2002), which summarizes German monetary policy in the first half of the twentieth century. The author gratefully acknowledges helpful comments from Michael Dotsey, Martin M. Fase, Andreas Hornstein, Thomas Humphrey, Joachim Scheide, and Alex Wolman. The views expressed in this article are those of the author and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.
    [Show full text]
  • Time for a Plaza II?
    14 Time for a Plaza II? C. FRED BERGSTEN The Plaza-Louvre in Retrospect The Plaza Accord of September 1985—and its successor Tokyo Summit and Louvre Accord over the following 18 months—represents the high-water mark of international economic policy cooperation and indeed coordination over the entire postwar period.1 These agreements created a model that has not been replicated during the past 30 years. Numerous other international efforts have been undertaken to correct current account imbalances and currency disequilibria. They have taken place under both fixed and flexible exchange rates, both before and after the Plaza- Louvre. A number of emergency meetings of the G-10 sought to resolve sterling crises in the 1960s. The Franco-German imbalance was addressed in 1968–69. Much more prominently, the 1971 Smithsonian Agreement established a new set of parities after the United States suspended the convertibility of the dollar into gold and adopted an import surcharge. C. Fred Bergsten was founding director of the Peterson Institute for International Economics from 1981 through 2012 and is now senior fellow and director emeritus there. The comments of William Cline, Charles Dallara, Jeffrey Frankel, Joseph Gagnon, Ted Truman, and John Williamson on earlier drafts of this chapter are greatly appreciated. Abir Varma provided invaluable research assistance. 1. This account of the Plaza-Louvre draws heavily on the defi nitive study of the period by Yoichi Funabashi (1989). Funabashi interviewed all but one of the ministers and central bank governors who negotiated the agreement (including Secretary James Baker, Assistant Secretary (later Under Secretary) David Mulford, Assistant Secretary Charles Dallara, and Fed Chairman Paul Volcker and his chief lieutenant, Ted Truman) as well as a who’s who of other government offi cials and outside observers.
    [Show full text]
  • Explaining Compliance with International Commitments to Combat Financial Crisis: the IMF and the G7
    Explaining Compliance with International Commitments to Combat Financial Crisis: The IMF and the G7 Ivan Savic Ph.D. Candidate Columbia University Presented at: 47th Annual ISA Convention San Diego, CA March 22-25, 2006 Panel: WD34 Wednesday 3:45 - 5:30 PM Explaining Compliance with International Economic Commitments Across the North-South Divide 1 Abstract: G7 commitments are a crucial element of international efforts to combat financial crises. The members of the G7 are the source of much of the world’s capital. Through individual action, regular coordination through Summits and Finance Minister Meetings, and their large voting shares in the IMF they effectively regulate and structure the international financial architecture. Finally, the G7 regularly supports and often supplements the efforts of the IMF to contain and reverse financial crisis. This paper will examine the relationship between the G7 and the IMF and how it affects the ability of both organizations to deal with crises. Specifically it will look at the influence of the G7 in the IMF and how the G7 coordinates and works with the IMF in crisis response. The paper will develop a model of coordination among the G7 and between the G7 and the IMF and then look at the record of their commitments since 1975 and the G7’s role in bailouts such as those created in response to the Asian Crisis of 1997/98. 1 Introduction Financial crises have been a long-standing issue in the international financial system and have in fact been around since it emerged in the late 1800s. As the international system has developed and become more sophisticated, numerous institutional efforts have been made to prevent the outbreak of financial crises.
    [Show full text]
  • Monetary Policy Cooperation/Coordination and Global Financial Crises in Historical Perspective
    NBER WORKING PAPER SERIES MONETARY POLICY COOPERATION/COORDINATION AND GLOBAL FINANCIAL CRISES IN HISTORICAL PERSPECTIVE Michael D. Bordo Working Paper 27898 http://www.nber.org/papers/w27898 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2020 Paper prepared for the conference “From Bretton Woods to 2008 and Beyond: Global Monetary Governance” Brussels, Belgium September 18 2020 The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2020 by Michael D. Bordo. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Monetary Policy Cooperation/Coordination and Global Financial Crises in Historical Perspective Michael D. Bordo NBER Working Paper No. 27898 October 2020 JEL No. E58,F33,N20 ABSTRACT The COVID-19 pandemic spawned a global liquidity crisis in March 2020. The global liquidity crisis was alleviated by the Federal Reserve and other advanced country central banks cooperating by extending the swap lines they developed in the Global Financial Crisis 2007-2008. Central bank cooperation in 2020 evolved from a two-century history across several monetary regimes that is surveyed in this paper. I find that in monetary regimes which are rules- based cooperation was most successful. International currency swaps developed to manage exchange rates during the Bretton Woods era have evolved into the leading tool to manage international liquidity crises.
    [Show full text]
  • Exchange Rates and Currency Manipulation
    Updated December 31, 2020 Exchange Rates and Currency Manipulation An exchange rate is the price of one currency in terms of Figure 1. Trade Weighted U.S. Dollar Index another currency. Exchange rates are some of the most Major Currencies, Goods (1973=100) important prices in the global economy: they affect international trade and financial flows and the value of every overseas investment. Policymakers have long expressed concerns that a country may intentionally weaken the value of its currency in order to boost exports at the expense of other countries. The United States has sought to counter so-called currency manipulation through a variety of policy tools. Currency manipulation is a controversial concept; there is debate about if, and if so how, it can be effectively addressed. Frameworks to Address Currency Source: Federal Reserve. Manipulation The United States continues to pursue coordination on International Monetary Fund exchange rate issues in the contemporary versions of these Concerns about unfair exchange rate practices are rooted in forums: the G-7 (a small group of advanced economies) the experiences of the 1930s, when countries repeatedly and the G-20 (a larger group of major advanced and devalued their currencies to boost exports in response to emerging-market economies). G-7 and G-20 statements widespread high unemployment and negative economic routinely include exchange rate commitments, such as for conditions. Competitive devaluations of the 1930s are market-determined exchange rates and to refrain from widely viewed as contributing to the Great Depression. competitive devaluations. Commitments made in the After World War II, countries created a new international context of the G-7 and the G-20 are non-binding.
    [Show full text]